What changed in this filing

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Item 1. Business

2023-03-16 compared with 2022-03-25 · 97 added, 90 removed, 548 unchanged (25% of the section changed)

FirstSun Capital Bancorp (“FirstSun”), a financial holding company headquartered in Denver, Colorado, provides a full spectrum of deposit, lending, treasury management, wealth management and online banking products and services through its two wholly-owned subsidiaries—Sunflower Bank, National Association (“Sunflower Bank” or the “Bank”), a national banking association, that operates as Sunflower Bank, N.A., First National 1870 and Guardian Mortgage and Logia Portfolio Management, LLC, a registered investment advisor organized under the laws of the State of Kansas that provides discretionary investment management to retail and institutional accounts.

In this report, unless the context suggests otherwise, references to “we,” “us,” and “our” mean the combined business of FirstSun and its wholly-owned subsidiaries, Sunflower Bank and Logia Portfolio Management, LLC.

Sunflower Bank was founded in 1892 and offers a full range of specialized financial services to business customers as well as relationship-focused services to meet personal, business and wealth management financial objectives for its customers, with a branch network in Kansas, Colorado, New Mexico, Texas, Arizona and Washington and mortgage banking capabilities in 43 states.

In this report, unless the context suggests otherwise, references to “we,” “us,” and “our” mean the combined business of FirstSun and its wholly-owned subsidiaries, including Sunflower Bank and Logia Portfolio Management, LLC.

Sunflower Bank was founded in 1892 and offers a full range of specialized financial services to business customers as well as relationship-focused services to meet personal, business and wealth management financial objectives for its customers, with a branch network in Texas, Kansas, Colorado, New Mexico, Arizona and Washington and mortgage banking capabilities in 43 states.

Our product line includes commercial loans and commercial real estate loans, residential mortgage and other consumer loans, a variety of commercial, consumer and private banking deposit products, including noninterest-bearing accounts, interest-bearing demand products, savings accounts, money market accounts and certificates of deposit and treasury management products and services.

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As of December 31, 2022, we had total assets of $7.4 billion, total net loans of $5.8 billion, total deposits of $5.8 billion and total stockholders’ equity of $774.5 million.

Proposed Merger with Pioneer Bancshares, Inc.

On May 11, 2021, FirstSun and Pioneer Bancshares, Inc.

(“Pioneer”) entered into an Agreement and Plan of Merger, as amended (the “merger agreement”).

Under the merger agreement, a wholly-owned subsidiary of FirstSun will merge with and into Pioneer, with Pioneer remaining as the surviving entity and becoming a wholly-owned subsidiary of FirstSun, in a transaction we refer to as the “merger.” This surviving entity, as soon as reasonably practicable following the merger and as part of a single integrated transaction, will merge with and into FirstSun, in a transaction we refer to as the “second step merger,” and together with the merger, as the “mergers.” Immediately following the completion of the second step merger or at such later time as the parties may mutually agree, Pioneer’s wholly-owned subsidiary, Pioneer Bank, SSB, a Texas state savings bank, will merge with and into FirstSun’s wholly-owned subsidiary, Sunflower Bank, with Sunflower Bank as the surviving bank, in a transaction we refer to as the “bank merger.”

If the merger is completed, each outstanding share of Pioneer common stock will be converted into the right to receive 1.0443 shares of FirstSun common stock, plus cash in lieu of fractional shares.

The combined entity is expected to have total assets that exceed $7 billion.

Pioneer shareholders voted to approve the merger at a special meeting of shareholders held on September 16, 2021.

On March 7, 2022, we received the necessary regulatory approvals to complete the mergers, subject to applicable waiting periods.

We expect to close the mergers on April 1, 2022, subject to the satisfaction of other customary closing conditions.

History and Growth

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On June 19, 2017, we completed our merger with the SGB parties.

SGB was a financial holding company that served as the top-tier financial holding company for Strategic.

SGB owned approximately 22.0% of Strategic, and Strategic owned 100% of its subsidiaries, including FNB.

Immediately following the SGB mergers, each of Capital Bank, SSB, a Texas state savings bank and wholly-owned subsidiary of Strategic, and First National Bank of Santa Fe, a national banking association and wholly-owned subsidiary of FNB, were merged with and into Sunflower Bank, with Sunflower Bank continuing as the surviving bank.

Under the merger agreement for the SGB mergers, FirstSun also acquired Guardian Mortgage Company, Inc., which we refer to as “Guardian,” a former subsidiary of Strategic.

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We also relocated our headquarters from Salina, Kansas to Denver, Colorado.

As a condition to closing the SGB mergers, FirstSun and stockholders holding substantially all of the stock of FirstSun, SGB and Strategic entered into a Stockholders’ Agreement and a Registration Rights Agreement, each as described below under “ Item 13, Certain Relationships and Related Transactions, and Director Independence.

On April 1, 2022, FirstSun completed its merger with Pioneer Bancshares, Inc.

Under the merger agreement, a wholly-owned subsidiary of FirstSun, FSCB Merger Subsidiary, Inc., merged with and into Pioneer, with Pioneer continuing as the surviving entity and becoming a wholly-owned subsidiary of FirstSun (the “Merger”).

Immediately after the effective time of the Merger (the “Effective Time”), Pioneer was merged with and into FirstSun, with FirstSun continuing as the surviving entity.

Immediately following the completion of the second step merger, Pioneer’s wholly-owned subsidiary, Pioneer Bank, SSB, a Texas state savings bank, was merged with and into the Bank, with the Bank continuing as the surviving bank.

Pursuant to the terms of the merger agreement, at the Effective Time, each Pioneer shareholder had the right to receive 1.0443 shares of FirstSun common stock, for each share of Pioneer common stock owned by the shareholder, with cash paid in lieu of fractional shares.

Each outstanding share of FirstSun common stock remained outstanding and was unaffected by the Merger.

With the acquisition, we acquired 19 branches in Texas.

The fair value of assets acquired and liabilities assumed were $1.5 billion and $1.4 billion respectively.

Total consideration paid in the Pioneer Merger was $240.8 million.

Further information is presented in Note 2 - Merger with Pioneer Bancshares, Inc .

Our Market Areas

We currently operate our principal executive office and Sunflower Bank’s main office at 1400 16th Street, Suite 250, Denver, Colorado 80202, and 53 banking branches principally located in five states, Kansas, Colorado, New Mexico, Texas and Arizona, with one branch located in Washington.

We currently operate our principal executive office and Sunflower Bank’s main office at 1400 16th Street, Suite 250, Denver, Colorado 80202, and 72 banking branches principally located in five states, Texas, Kansas, Colorado, New Mexico and Arizona, with one branch located in Washington.

In addition, through our mortgage division, Guardian, we originate home mortgages in over 40 states.

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Share (1) Deposits in Market (1)

Texas $ 1,728,401,037 25 0.10 % $ 1,717,218

Kansas (2) $ 100,016,319 23 1.60 % $ 1,596,687

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New Mexico $ 45,314,085 9 2.77 % $ 1,257,356

Texas $ 1,572,292,266 5 0.03 % $ 418,123

Arizona $ 227,883,554 4 0.11 % $ 256,441

Washington $ 231,452,693 1 — % $ 2,334

(1) Based solely on FDIC data, including total deposits, number of branches, market share and deposits in market as of June 30, 2022.

(2) Kansas deposits and branch count includes Sunflower Bank’s office located at 3025 Cortland Circle, Salina, KS 67401.

(3) Colorado deposits and branch count includes Sunflower Bank’s main office located at 1400 16th Street, Suite 250, Denver, Colorado 80202.

(3) Excludes one branch located in Spokane Washington that was opened on 5/17/2021 and did not have any reportable deposits as of June 30, 2021.

Our Business Strategy

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Our business is focused on providing specialized commercial and consumer banking services to our clients, with an emphasis on key Southwest growth markets.

Our unwavering commitment to serving local communities has led to a high-quality core deposit franchise focused in stable, non-metropolitan markets as well as higher growth metropolitan markets that provides a low cost funding base for our lending opportunities.

In addition, our growing mortgage, wealth management, private banking and treasury management businesses provide revenue diversification and best-in-class fee income generation.

Our unwavering commitment to serving local communities has led to a high-quality core deposit franchise focused in higher growth metropolitan markets as well as stable, non-metropolitan markets that provides a low cost funding base for our lending opportunities.

In addition, our mortgage, wealth management, private banking and treasury management businesses provide revenue diversification and best-in-class fee income generation.

Lastly, we believe our experience as an acquirer with a successful track record of integrating and re-positioning acquired companies complements and will further fuel our organic growth strategy.

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From our modest beginning in 1892, our founders understood that our success would be closely tied to that of the communities in which we operate, and that long-term value creation would require an uncompromising commitment to service and the establishment of enduring relationships with our clients.

That vision continues to drive us today, as our 1,042 full-time equivalent employee base, as of December 31, 2021, serves our business and consumer customers, including through our network of 53 branches principally located in Kansas, Colorado, New Mexico, Texas and Arizona.

That vision continues to drive us today, as our 1,149 full-time equivalent employee base, as of December 31, 2022, serves our business and consumer customers, including through our network of 72 branches principally located in Texas, Kansas, Colorado, New Mexico and Arizona.

Our core competencies include a relationship-centered and multi-line sales approach, a focus on collaboration across a highly skilled and seasoned team of bankers and a dynamic ability to provide our clients with the highest quality services and solutions.

This strategy has enabled us to attract

business customers across our traditional and expanded geographic footprint.

This strategy has enabled us to attract business customers across our traditional and expanded geographic footprint.

The objective is to be a trusted advisor to our clients as they build their businesses with our resources, support and advice.

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Our deposit footprint has provided, and we believe will continue to provide, principal support for the growth of our loan portfolio.

A key element of our funding strategy is a focus on commercial and consumer banking relationships in our markets, specifically our historically stable, lower growth markets in Kansas and New Mexico.

A key element of our funding strategy is a focus on commercial and consumer banking relationships in our markets, including our historically stable, lower growth markets in Kansas and New Mexico.

Additionally, we believe our growing treasury management business will continue to benefit our attractive funding base.

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We deployed our organic growth strategy in the Dallas, Texas market beginning in late 2019 with a commercial team lift-out that by December 2020 generated significant loans and deposits, making Dallas our fastest growing loan market over this period.

In addition to our organic expansion in Dallas, on a pro forma basis, if we close our proposed merger with Pioneer, Texas will represent ~30% of our pro forma deposit base as of December 31, 2021.

In addition to our organic expansion in Dallas, we closed our merger with Pioneer on April 1, 2022, which further increased our Texas loans and deposit market position.

We anticipate continuing to grow our Texas deposit base in the years to come.

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Our commercial and industrial loans are typically made to small- and medium-sized manufacturing, service, wholesale and retail businesses for working capital and operation needs and business expansions, including the purchase of capital equipment.

Commercial and industrial loans include our specialty lending verticals such as public finance offerings to our charter school and municipal based customers, asset based lending and structured finance products.

Commercial and industrial loans include our specialty lending verticals such as structured finance products, asset based lending and public finance offerings to our charter school and municipal based customers.

Commercial and industrial also includes our healthcare, SBA and other small business lending products.

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Fluctuations in the value of real estate, as well as other factors arising after a loan has been made, could negatively affect a borrower’s cash flow, creditworthiness and ability to repay the loan.

When we make new real estate loans, we obtain a security interest in real estate whenever possible, in addition to any other available collateral, to increase

the likelihood of the ultimate repayment of the loan.

When we make new real estate loans, we obtain a security interest in real estate whenever possible, in addition to any other available collateral, to increase the likelihood of the ultimate repayment of the loan.

To control concentration risk, we monitor collateral type and industry concentrations within this portfolio.

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Our commercial real estate loans consist of both owner-occupied and non-owner occupied commercial real estate loans.

The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as offices, warehouses, production facilities, health care facilities, hotels, mixed-use residential/commercial, retail centers, restaurants, assisted living facilities and self-storage facilities.

The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as offices, warehouses, production facilities, health care facilities, hotels,

mixed-use residential/commercial, retail centers, restaurants, assisted living facilities and self-storage facilities.

As of December 31, 2022, $636.3 million of our commercial real estate loan portfolio, or 10.7% of our loan portfolio, was owner-occupied commercial real estate loans, and $779.5 million of our commercial real estate loan portfolio, or 13.1% of our loan portfolio, was non-owner occupied commercial real estate loans.

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We intend to continue to take advantage of opportunities to profitably grow our mortgage business as they present themselves, including by continuing to expand our mortgage business outside of our community banking geographic footprint, improving the client experience through an enhanced fulfillment process, attracting experienced loan officers and improving profitability through centralized efficiencies.

We have managed to grow our mortgage business while maintaining a high-degree of scalability to control costs in the event of a downturn in our mortgage business.

We maintain a high-degree of scalability to control costs in the event of a downturn in our mortgage business.

Our mortgage loan office leases are primarily shorter-term in nature and the majority of our mortgage-related compensation is in the form of variable compensation.

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The residential mortgage industry is highly competitive and we compete with other community banks, regional banks, national banks, credit unions, mortgage companies, financial service companies and online mortgage companies.

Due to the highly competitive nature of the residential mortgage industry, we expect to face industry-wide competitive pressures related to changing market conditions that will reduce our pricing margins and mortgage revenues generally, especially in a rising rate environment.

the highly competitive nature of the residential mortgage industry, we expect to face industry-wide competitive pressures related to changing market conditions that will reduce our pricing margins and mortgage revenues generally, especially in a rising rate environment.

Our mortgage banking business is also directly impacted by the interest rate environment, increased regulations, consumer demand, driven in large part by general economic conditions and the real estate markets, and investor demand for mortgage securities.

Mortgage production, especially refinancing activity, declines in rising interest rate environments.

While we have been experiencing historically low interest rates, the low interest rate environment likely will not continue indefinitely.

In early 2022, we have experienced a slight slowdown in our mortgage origination volume due in part to rising interest rates.

We believe our mortgage origination volume could be materially and adversely affected in 2022.

We expect to see declining origination volume in 2022 within the industry as a whole as interest rates are expected to rise over the course of 2022.

In 2022, we experienced a slowdown in our mortgage origination volume due to the rising interest rates.

We expect to see declining origination volume in 2023 within the industry as a whole as interest rates are expected to remain elevated over the course of 2023.

Sale of residential mortgages .

We sell substantially all of the residential mortgage loans we originate through our mortgage banking business to Fannie Mae, Freddie Mac or, to a lesser extent, an array of private national mortgage investors.

We sell a large majority of the residential mortgage loans we originate through our mortgage banking business to Fannie Mae, Freddie Mac or, to a lesser extent, an array of private national mortgage investors.

As part of our overall asset/liability management objectives, we may also retain certain residential loans that we originate and, in such an instance, would bear the risk of default with respect to these loans.

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We emphasize obtaining deposit relationships at loan origination.

We provide a high level of customer service to our depositors.

We provide a high level of customer service

to our depositors.

We have invested in personnel, business and compliance processes and technology that enable us to acquire, and efficiently and effectively serve, a wide array of business deposit accounts, while continuing to provide the level of customer service for which we are known.

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In addition to the tailored underwriting process described above, we perform ongoing risk monitoring and review processes for credit exposures.

Although we grade and classify our loans internally, we engage an independent third-party professional firm to perform regular loan reviews and confirm loan classifications.

An internal loan review team that utilizes a mix of internal and external resources perform regular loan reviews and confirm loan classifications.

We strive to identify potential problem loans early in an effort to aggressively seek resolution of these situations before they create a loss.

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The dollar amounts of the Bank’s lending limit increases or decreases as the bank’s capital increases or decreases.

We are able to sell participations in its larger loans to other financial institutions, which allows us to better manage the risk and exposure involved with larger loans and to meet the lending needs of our customers requiring extensions of credit in excess of regulatory limits.

We are able to sell participations in larger loans to other financial institutions, which allows us to better manage the risk and exposure involved with larger loans and to meet the lending needs of our customers requiring extensions of credit in excess of regulatory limits.

Sunflower Bank’s legal lending limit as of December 31, 2022, on loans to a single borrower was $122.3 million (15%) and $203.8 million (25%, for fully secured loans).

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Employee Profile.

As of December 31, 2021, we had 1,063 total employees and 1,042 full-time equivalent employees, primarily located in Kansas, Colorado, New Mexico, Texas and Arizona.

As of December 31, 2022, we had 1,171 total employees and 1,149 full-time equivalent employees, primarily located in Texas, Kansas, Colorado, New Mexico and Arizona.

Our employees are not covered by a collective bargaining agreement.

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Although the 2008 financial crisis has now passed, the legislative and regulatory response, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), will continue to have an impact on our operations.

In addition, newer regulatory developments implemented in response to the COVID-19 pandemic, including the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act and omnibus federal spending and economic stimulus legislation titled the “Consolidated Appropriations Act, 2021,” which enhanced and expanded certain provisions of the CARES Act, have had and may continue to have an impact on our operations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act

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Governmental intervention and new regulations could materially and adversely affect our business, financial condition and results of operations.

The Cares Act

The COVID-19 pandemic has continued to cause extensive disruptions to the global economy, to businesses, and to the lives of individuals throughout the world.

On March 27, 2020, the CARES Act was signed into law.

The CARES Act was a $2.2 trillion economic stimulus bill that was intended to provide relief in the wake of the COVID-19 pandemic.

There have also been a number of regulatory actions intended to help mitigate the adverse economic impact of the COVID-19 pandemic on borrowers, including several mandates from the bank regulatory agencies, requiring financial institutions to work constructively with borrowers affected by the COVID-19 pandemic.

Although these programs generally have expired, governmental authorities may take additional actions in the future to limit the adverse impact of COVID-19 on borrowers and tenants.

Paycheck Protection Program

The Paycheck Protection Program, or PPP, originally established under the CARES Act and extended under the Consolidated Appropriations Act of 2021, authorized financial institutions to make federally-guaranteed loans to qualifying small businesses and non-profit organizations.

These loans carry an interest rate of 1% per annum and a maturity of two years for loans originated prior to June 5, 2020 and five years for loans originated on or after June 5, 2020.

The PPP provides that such loans may be forgiven if the borrowers meet certain requirements with respect to maintaining employee headcount and payroll and the use of the loan proceeds after the loan is originated.

The initial phase of the PPP, after being extended multiple times by Congress, expired on August 8, 2020.

However, on January 11, 2021, the SBA reopened the PPP for First Draw PPP loans to small businesses and non-profit organizations that did not receive a loan through the initial PPP phase.

Further, on January 13, 2021, the SBA reopened the PPP for Second Draw PPP loans to small businesses and non-profit organizations that did receive a loan through the initial PPP phase.

Maximum loan amounts were also increased for accommodation and food service businesses.

Although the PPP ended in accordance with its terms on May 31, 2021, outstanding PPP loans continue to go through the process of either obtaining forgiveness from the SBA or pursuing claims under the SBA guaranty.

Troubled Debt Restructurings and Loan Modifications for Affected Borrowers

The CARES Act, as extended by certain provisions of the Consolidated Appropriations Act, 2021, initially permitted banks to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise have been characterized as troubled debt restructurings and suspended any determination related thereto if (a) the borrower was not more than 30 days past due as of December 31, 2019, (b) the modifications were related to COVID-19, and (c) the modification occurred between March 1, 2020 and January 1, 2022.

Federal bank regulatory authorities also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19.

Bank Holding Company Regulation

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Permitted Activities

We are a bank holding company, and have elected to be a financial holding company, which permits us to engage in expanded financial activities as a bank holding company.

Under the BHC Act, a bank holding company is generally permitted to engage in, or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in, the following activities:

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Financial Holding Company

Provisions of the Gramm-Leach-Bliley Act have expanded the permissible activities of a bank holding company that qualifies as a financial holding company.

A bank holding company can elect to be treated as a “financial holding company,” which would allow it to engage in a broader array of activities.

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FirstSun is currently a financial holding company.

In order to remain a financial holding company, FirstSun must continue to be considered well managed and well capitalized by the Federal Reserve, and the Bank must continue to be considered well managed and well capitalized by the Office of the Comptroller of the Currency (the “OCC”) and have at least a “satisfactory” rating under the Community Reinvestment Act.

Expansion Activities

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There are a number of obligations and restrictions imposed by law and regulatory policy on bank holding companies with regard to their depository institution subsidiaries that are designed to minimize potential loss to depositors and to the FDIC insurance funds in the event that the depository institution becomes in danger of defaulting under its obligations to repay deposits.

Under a policy of the Federal Reserve, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so absent such policy.

Under a policy of the Federal Reserve and the Dodd-Frank Act, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so absent such policy.

Under the Federal Deposit Insurance Corporation Improvement Act of 1991, to avoid receivership of its insured depository institution subsidiary, a bank holding company is required to guarantee the compliance of any insured depository institution subsidiary that may become “undercapitalized” within the terms of any capital restoration plan filed by such subsidiary with its appropriate federal banking agency up to the lesser of (a) an amount equal to 5% of the institution’s total assets at the time the institution became undercapitalized, or (b) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan.

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In addition, the “cross guarantee” provisions of the Federal Deposit Insurance Act (the “FDIA”) require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the FDIC as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default.

The FDIC’s claim for damages is superior to claims of stockholders of the insured depository institution or its holding company, but is subordinate to claims of depositors, secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institutions.

The FDIC’s claim for damages is superior to claims of stockholders of the insured depository institution or its holding company, but is subordinate to claims of

depositors, secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institutions.

The FDIA also provides that amounts received from the liquidation or other resolution of any insured depository institution by any receiver must be distributed (after payment of secured claims) to pay the deposit liabilities of the institution prior to payment of any other general or unsecured senior liability, subordinated liability, general creditor or stockholder.

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(b) the prospective rate of earnings retention is inconsistent with the company’s capital needs and overall current and prospective financial condition;

or (c) the company will not meet, or is in danger of not meeting, its minimum

regulatory capital adequacy ratios.

or (c) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

Under Federal Reserve policy, bank holding companies are expected to inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the organization’s capital structure.

The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations.

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See “Bank Regulation—Capital and Related Requirements” below.

Stock Buybacks and Other Capital Redemptions

Under Federal Reserve policies and regulations, bank holding companies must seek regulatory approval prior to any redemption that would reduce the bank holding company’s consolidated net worth by 10% or more, prior to the redemption of most instruments included in Tier 1 or Tier 2 capital with features permitting redemption at the option of the issuing bank holding company, or prior to the redemption of equity or other capital instruments included in Tier 1 or Tier 2 capital prior to stated maturity, if such redemption could have a material effect on the level or composition of the organization’s capital base.

Bank holding companies are also expected to both inform the Federal Reserve reasonably in advance of a redemption or repurchase of common stock if such buyback results in a net reduction of the company’s outstanding amount of common stock below the amount outstanding at the beginning of the fiscal quarter, and to consult with the Federal Reserve generally prior to engaging in stock buybacks.

Sarbanes-Oxley Act of 2002

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Sarbanes-Oxley and the various regulations promulgated under Sarbanes-Oxley, established, among other things:

(a) requirements for audit committees, including independence, expertise, and responsibilities;

(a) requirements for audit committees, including independence,

expertise, and responsibilities;

(b) additional responsibilities relating to financial statements for the Chief Executive Officer and Chief Financial Officer of reporting companies;

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Various consumer laws and regulations also affect the operations of Sunflower Bank.

The OCC regularly examines Sunflower Bank’s operations and has the authority to approve or disapprove mergers, the establishment of branches and similar corporate actions.

The OCC also has the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law.

Sunflower Bank is also subject to numerous state and federal statutes and regulations that affect its business, activities, and operations.

National banks are required by the National Bank Act to adhere to branching laws applicable to state banks in the states in which they are located.

Under Colorado law and the Dodd-Frank Act, and with the prior approval of the OCC, Sunflower Bank may open branch offices within or outside of Colorado, provided that a state bank chartered by the state in which the branch is to be located would also be permitted to establish a branch.

In addition, with prior regulatory approval, Sunflower Bank may acquire branches of existing banks located in Colorado or other states.

Capital and Related Requirements

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(a) a CET1 capital ratio of 7.0%, (b) a Tier 1 risk-based capital ratio of 8.5%, and (c) a total risk-based capital ratio of 10.5%.

On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to (a) address the upcoming implementation of a new credit impairment model, the Current Expected Credit Loss, or CECL model, an accounting standard under GAAP; (b) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations are expected to experience upon adopting CECL; and (c) require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for certain banking organizations that are subject to stress testing.

We are currently evaluating the impact the CECL model will have on our accounting.

We expect to recognize a one-time cumulative-effect adjustment to our allowance for loan losses as of the beginning of the first quarter of 2023, the first reporting period in which the new standard will become effective for us.

At this time, we cannot reasonably determine the magnitude of such one-time cumulative adjustment, if any, or of the overall impact of the new standard on our business, financial condition or results of operations.

The capital rules require that goodwill and other intangible assets (other than mortgage servicing assets), net of associated deferred tax liabilities (“DTLs”), be deducted from CET1 capital.

Additionally, deferred tax assets (“DTAs”) that arise from net operating loss and tax credit carryforwards, net of associated DTLs and valuation allowances, are fully deducted from CET1 capital.

However, DTAs arising from temporary differences that could not be realized through net operating loss carrybacks, along with mortgage servicing assets and “significant” (defined as greater than 10% of the issued and outstanding common stock of the unconsolidated financial institution) investments in the common stock of unconsolidated “financial institutions” are partially includible in CET1 capital, subject to deductions defined in the rules.

The OCC also considers interest rate risk (arising when the interest rate sensitivity of Sunflower Bank’s assets does not match the sensitivity of its liabilities or its off-balance sheet position) in the evaluation of the bank’s capital adequacy.

Banks with excessive interest rate risk exposure are required to hold additional amounts of capital against their exposure to losses resulting from that risk.

Through the risk-weighting of assets, the regulators also require banks to incorporate market risk components into their risk-based capital.

Under these market risk requirements, capital is allocated to support the amount of market risk related to a bank’s lending and trading activities.

Sunflower Bank’s capital categories are determined solely for the purpose of applying the “prompt corrective action” rules described below and they are not necessarily an accurate representation of its overall financial condition or prospects for other purposes.

Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions on its business.

See “Prompt Corrective Action” below.

In November 2019, the federal banking regulators published final rules implementing a simplified measure of capital adequacy for certain banking organizations that have less than $10 billion in total consolidated assets.

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Prompt Corrective Action

As an insured depository institution, we are required to comply with the capital requirements promulgated under the Federal Deposit Insurance Act (the “FDIA”).

The FDIA requires each federal banking agency to take prompt corrective action (“PCA”) to resolve the problems of insured depository institutions, including those that fall below one or more prescribed minimum capital ratios.

As an insured depository institution, we are required to comply with the capital requirements promulgated under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”).

The FDICIA requires each federal banking agency to take prompt corrective action (“PCA”) to resolve the problems of insured depository institutions, including those that fall below one or more prescribed minimum capital ratios.

The law requires each federal banking agency to promulgate regulations defining the following five categories in which an insured depository institution will be placed, based on the level of capital ratios:

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and (k) ultimately, appointing a receiver for the institution.

We are currently evaluating the impact the CECL model will have on our accounting.

The results of our most recent parallel run have indicated the initial adoption of ASU 2016-13 to not be material to our consolidated balance sheet.

Dividend Payments

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Without prior OCC approval, however, a national bank may not pay dividends in any calendar year that, in the aggregate, exceed the bank’s year-to-date net income plus the bank’s retained net income for the two preceding years.

The payment of dividends by any FDIC-insured institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and an FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.

The payment of dividends by any FDIC-insured institution is affected by the requirement to maintain adequate capital pursuant

to applicable capital adequacy guidelines and regulations, and an FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.

As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2022.

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However, the Federal Reserve has not joined the proposed rulemaking.

2020, the OCC issued its final CRA rule, which was later rescinded in December 2021, and was replaced with a rule based on the rules adopted jointly by the federal banking agencies in 1995.

In May 2020, the OCC issued its final CRA rule, which was later rescinded in December 2021, and was replaced with a rule based on the rules adopted jointly by the federal banking agencies in 1995.

On the same day that the OCC announced its plans to rescind the CRA final rule, the OCC, FDIC, and Federal Reserve announced that they are working together to “strengthen and modernize the rules implementing the CRA.” The effects on the Bank of any potential change to the CRA rules will depend on the final form of any federal rulemaking and cannot be predicted at this time.

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The activities of the Bank are subject to a variety of statutes and regulations designed to protect consumers.

This includes Title X of the Dodd-Frank Act, which prohibits engaging in any unfair, deceptive, or abusive acts or practices, or “UDAAP.” UDAAP claims involve detecting and assessing risks to consumers and to markets for consumer financial products and services.

Bank regulatory agencies have increasingly used a general consumer protection statute to address “unethical” or otherwise “bad” business practices that may not necessarily fall directly under the purview of a specific banking or consumer finance law.

The law of choice for enforcement against such business practices has been Section 5 of the Federal Trade Commission Act—the primary federal law that prohibits “unfair or deceptive acts or practices” and unfair methods of competition in or affecting commerce (“UDAP” or “FTC Act”).

“Unjustified consumer injury” is the principal focus of the FTC Act.

Prior to the Dodd-Frank Act, there was little formal guidance to provide insight to the parameters for compliance with the UDAP law.

However, the UDAP provisions have been expanded under the Dodd-Frank Act to apply to “unfair, deceptive or abusive acts or practices” (“UDAAP”).

The CFPB has brought a variety of enforcement actions for violations of UDAAP provisions and CFPB guidance continues to evolve.

Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates.

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The deposit operations of the Bank are also subject to federal laws, such as:

• the Federal Deposit Insurance Act, or the “FDIA,” which, among other things, limits the amount of deposit insurance available per insured depositor category to $250,000 and imposes other limits on deposit-taking;

• the Federal Deposit Insurance Act which, among other things, limits the amount of deposit insurance available per insured depositor category to $250,000 and imposes other limits on deposit-taking;

• the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

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Treasury Department’s Financial Crimes Enforcement Network for transactions exceeding $10,000;

(d) filing suspicious activities reports if a bank believes a customer may be violating U.S.

filing suspicious activities reports if a bank believes a customer may be violating U.S.

laws and regulations;

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These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial services.

Consumers must be notified in the event of a data breach under applicable state laws.

Multiple states and Congress are considering laws or regulations which could create new individual privacy rights and impose increased obligations on companies handling personal data.

For example, on November 18, 2021, the federal financial regulatory agencies published a final rule that will impose upon banking organizations and their service providers new notification requirements for significant cybersecurity incidents.

Specifically, the final rule requires banking organizations to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the level of a “notification incident” within the meaning attributed to those terms by the final rule.

Banks’ service providers are required under the final rule to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible” after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.

The final rule will take effect on April 1, 2022 and banks and their service providers must be in compliance with the requirements of the rule by May 1, 2022.

Consumers must be notified in the event of a data breach under applicable federal and state laws.

Under federal regulations, banking organizations are required to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the level of a “notification incident” within the meaning attributed to those terms by the federal regulation.

Banks’ service providers are required under the federal regulation to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible”

after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.

Deposit Premiums and Assessments

Sunflower Bank’s deposits are insured by the Deposit Insurance Fund (DIF) of the FDIC up to $250,000, the maximum amount permitted by law.

The FDIC uses the DIF to protect against the loss of insured deposits if an FDIC-insured bank or savings association fails.

As an FDIC-insured bank, we must pay deposit insurance assessments to the FDIC based on our average total assets minus our average tangible equity.

Deposits are insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit of the U.S.

As an institution with less than $10 billion in assets, our assessment rates are based on the level of risk we pose to the FDIC’s deposit insurance fund (DIF).

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For example, under the Dodd-Frank Act, the minimum designated reserve ratio for the DIF was increased to 1.35% of the estimated total amount of insured deposits.

On September 30, 2018, the DIF reached 1.36%, exceeding the statutorily required minimum reserve ratio of 1.35%.

On reaching the minimum reserve ratio of 1.35%, FDIC regulations provided for two changes to deposit insurance assessments:

(a) surcharges on insured depository institutions with total consolidated assets of $10 billion or more (large institutions) ceased;

and (b) small banks were to receive assessment credits for the portion of their assessments that contributed to the growth in the reserve ratio from between 1.15% and 1.35%, to be applied when the reserve ratio is at or above 1.38%.

Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the DIF reserve ratio to decline below the statutory minimum of 1.35%.

In October 2022, the FDIC announced a uniform two basis point increase in the deposit insurance assessment rate beginning in the first quarterly assessment period of 2023, with the intended purpose of having the DIF reach its statutory limit of 1.35% by the statutory deadline of September 30, 2028.

The FDIC may terminate the deposit insurance of any insured depository institution if it determines after a notice and hearing that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

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The federal banking regulators previously issued guidance in December 2006, entitled “Interagency Guidance on Concentrations in CRE Lending, Sound Risk Management Practices,” which stated that an institution that is potentially exposed to significant CRE concentration risk should employ enhanced risk management practices.

Specifically, the guidance states that such institutions have (i) total CRE loans representing 300% or more of the institution’s total capital and (ii) the outstanding balance of such institution’s CRE loan portfolio has increased by 50% or more during the prior 36 months.

Specifically, the guidance states that such institutions that are potentially exposed to significant CRE concentration risk and may warrant greater supervisory scrutiny are those institutions which have (i) total CRE loans representing 300% or more of the institution’s total capital and (ii) the outstanding balance of such institution’s CRE loan portfolio has increased by 50% or more during the prior 36 months.

Effect of Governmental Monetary Policies

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Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied or interpreted.

The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation has in the past and may in the future affect the regulatory structure under which we operate and may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital or modify our business strategy, or limit our ability to pursue business opportunities in an efficient manner.

The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the

proposed legislation has in the past and may in the future affect the regulatory structure under which we operate and may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital or modify our business strategy, or limit our ability to pursue business opportunities in an efficient manner.

Our business, financial condition, results of operations or prospects may be adversely affected, perhaps materially, as a result.

Internet Address

We maintain an internet website at http://ir.firstsuncb.com.

Available Information

We file reports with the SEC including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy statements, as well as any amendments to those reports and statements.

The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports and statements filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are also accessible at no cost on our internet website at http://ir.firstsuncb.com after they are electronically filed with the SEC.

No information contained on our website is intended to be included as part of, or incorporated by reference into, this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business